Lawmakers seek to tax buyers and refinancers for oil spillby Peter Miller
Lawmakers are thinking about taxing borrowers with a hidden fee to help benefit the states hurt by the 2010 BP oil spill.
Senators Mary L. Landrieu (D-La.) and Richard Shelby (R-Ala.) want to tax homebuyers and refinancers by increasing the guarantee fee or G-fee collected by Fannie Mae and Freddie Mac. The plan is to then divert that money to fund local development projects in their states.
This proposal comes not long after the president signed a bill to increase the G-fee by at least 10 basis points in order to pay for the payroll tax extension.
Is this a byproduct of special interests?
At first this doesn’t sound like a bad idea—helping to ensure “the long-term health of the coastal ecosystem and its economies.” In other words, nobody is going to call this thing a “tax,” and nobody is going to say it’s the byproduct of “special interests,” but that’s exactly what it is.
After all, if we’re going to add to the cost of Fannie Mae and Freddie Mac mortgage transactions through an increase in their fees, then why stop with the areas impacted by Hurricane Katrina and the Gulf oil spill? Surely Ohio, Kentucky and Tennessee would also like to see some funds generated by the G-fee to help them overcome the recent tornadoes which devastated many of their homes and communities. And since California, New Jersey and Idaho have roads and bridges to fix, you can bet that they too might want mortgage borrowers to pay for a few local projects as well.
Money collected from mortgage borrowers should be used to either hold down financing costs or to make mortgage programs more effective. By increasing the G-fee and not using the money to directly benefit borrowers, we have created nothing but a back-door tax increase to benefit special interests.
Mortgage rates rise thanks to the G-fee
The reality of a G-fee increase is that mortgage rates will rise. The new fees are being paid by mortgage borrowers to offset the costs of lower payroll taxes, but neither are especially connected. After all, why should mortgage borrowers have to underwrite payroll taxes nationwide?
The point is not that the Gulf does not need additional help. The issue is that they should get it from the right place–general tax money. Mortgage borrowers from other states should not have to underwrite the damage caused by a massive oil spill in the Gulf of Mexico.
The federal government should be making such payments from its tax revenues–but if the government simply makes the payments it would increase the deficit and that’s a political problem. The new G-fee proposal is trying to avoid a deficit issue by slipping in a new tax on mortgage borrowers.
Congress ought to reject the Landrieu-Shelby proposal and stop thinking of Fannie Mae and Freddie Mac G-fees as a cash cow to be tapped whenever a special interest needs a few dollars. After all, it could be the Gulf today and 27 additional special interests tomorrow.